Citation NR: 9621000
Decision Date: 07/23/96 Archive Date: 08/02/96
DOCKET NO. 94-27 704 ) DATE
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On appeal from the
Department of Veterans Affairs Regional Office in St.
Petersburg, Florida
THE ISSUE
Waiver of recovery of loan guaranty indebtedness.
WITNESS AT HEARING ON APPEAL
Appellant
ATTORNEY FOR THE BOARD
Christopher P. Kissel, Associate Counsel
INTRODUCTION
The appellant’s dates of service are not of record.
This case comes before the Board of Veterans’ Appeals (the
Board) on appeal from a decision of the Committee on Waivers
and Compromises (the Committee) of the St. Petersburg,
Florida, Department of Veterans Affairs Regional Office
(VARO), issued in January 1993. Specifically, the Committee
concluded that the appellant’s actions which resulted in the
default and indebtedness in this case constituted “bad faith”
as defined by applicable statutes and regulations. 38 C.F.R.
§ 1.965(b) (1995). A notice of disagreement was received by
VARO in May 1993 and the appellant filed his substantive
appeal to the Board in January 1994.
CONTENTIONS OF APPELLANT ON APPEAL
The appellant contends, in essence, that he did not act in
bad faith with respect the default and subsequent creation of
the loan guaranty indebtedness. He further argues that
recovery of the outstanding indebtedness would result in
undue financial hardship.
DECISION OF THE BOARD
The Board, in accordance with the provisions of 38 U.S.C.A.
§ 7104 (West 1991 & Supp. 1995), has reviewed and considered
all of the evidence and material of record in the veteran’s
claims file(s). Based on its review of the relevant evidence
in this matter, and for the following reasons and bases, it
is the decision of the Board that consideration of waiver of
recovery of the outstanding loan guaranty indebtedness is
barred due to the appellant’s bad faith.
FINDINGS OF FACT
1. In January 1985, the appellant and his ex-wife obtained a
loan in the amount of $34,340.00, which was guaranteed, in
part, by VA, for the purchase of a home in Jacksonville,
Florida.
2. A notice of default received by VA in September 1990,
indicated that the first uncured default occurred on June 1,
1990. The lender reported that the reason for the default
was disregard for the mortgage obligation.
3. VA sent a notice letter to the appellant at the property
address in January 1991, informing him of the default
situation and advising him to contact a loan service
representative for the purpose of discussing arrangements to
either cure the default or avoid foreclosure.
4. The evidence of record discloses that the appellant did
not respond to the VA’s inquiry of January 1991 because he
vacated the property without notice in September 1990 and
moved to Indiana.
5. The subject property was sold at a foreclosure sale in
June 1991, for an amount less than the outstanding principal,
interest and related costs and the resulting deficiency was
charged to the appellant. An accounting of the deficiency
reveals that he is indebted to the government in the amount
of $6,495.07.
6. The evidence of record discloses that the appellant
ignored the inquiries of the lender and VA concerning the
circumstances of his default and then without notice,
abandoned the property many months prior to the foreclosure
sale.
7. The appellant’s abandonment of the property and move out-
of-state in September 1990 impeaches his contentions alleged
on appeal regarding his efforts to either sell or rent the
property after his June 1990 default.
8. The appellant’s failure to make the payments on the VA
guaranteed loan, coupled with the lack of any effort on his
part to avoid foreclosure including his failure to respond to
attempts at contact by both VA and the lender with regard to
efforts to avoid foreclosure demonstrate a willful neglect of
his contractual obligation.
CONCLUSIONS OF LAW
1. After default, there was a loss of property which secured
a loan guaranteed by the Department of Veterans Affairs. 38
U.S.C.A. § 5302 (West 1991 & Supp. 1995); 38 C.F.R. § 1.964
(1995).
2. The appellant’s bad faith precludes further consideration
of waiver of recovery of the loan guaranty indebtedness. 38
U.S.C.A. § 5302 (West 1991 & Supp. 1995); 38 C.F.R.
§ 1.965(b)(2) (1995).
REASONS AND BASES FOR FINDINGS AND CONCLUSIONS
Initially, the Board finds that the appellant has presented a
claim which is supported by evidence which leads to the belief
that it is well grounded. 38 U.S.C.A. § 5107(a) (West 1991)
and Murphy v. Derwinski, 1 Vet.App. 78 (1990).
Factual Background
In January 1985, the appellant applied for a home mortgage
loan which was guaranteed by the Department of Veterans
Affairs (VA). 38 U.S.C.A. §§ 3701 et seq. (West 1991 & Supp.
1995). The application was approved, and in January 1985, he
and his ex-wife jointly purchased a house in Jacksonville,
Florida. The amount of the loan was $34,340. At the time he
applied for the loan, the appellant certified that he had
made no fraudulent or intentional misrepresentations in
connection with the issuance of the VA loan. See VA
Application for Home Loan Guaranty, VA Form 26-1802a (January
8, 1985).
In September 1990, the mortgage holder notified VA that
monthly mortgage payments had not been made since June 1,
1990. The “Notice of Default” indicated that the reason for
the default was due to disregard for the mortgage obligation.
It was also noted that the appellant’s attitude toward the
default was “uncooperative,” as reflected by the mortgage
holder’s unsuccessful attempts to contact the appellant on
multiple occasions by letter/wire and telephone. There is no
evidence in the file indicating that the appellant responded
to six (6) letter/wire notices sent to the property address
by the mortgage holder. The record also reflects that VA
sent a notice letter to the appellant at the property address
in January 1991, informing him of the default situation and
advising him to contact a loan service representative for the
purpose of discussing arrangements to either cure the default
or avoid foreclosure. Although the notice letter was
returned by the Post Office as undeliverable with no
forwarding address left by the appellant, the evidence on
file discloses that the reason why he never received the
letter was because he vacated the property without notice to
either the holder or VA in September 1990 and moved to
Indiana. At his hearing in September 1993, the appellant
testified that he vacated the property and moved to Indiana
in September 1990.
Foreclosure proceedings were subsequently initiated and the
subject property was sold at a foreclosure sale in June 1991.
The mortgage holder filed a claim under the loan guaranty,
which was satisfied, in part, by VA, and in November 1991,
the appellant was found to be responsible for the loan
guaranty indebtedness in the amount of $5,929.01. See Advice
Regarding Indebtedness of Obligors on Guaranteed or Insured
Loans, VA Form 26-1833 (November 20, 1991). The loan
guaranty indebtedness was later increased to $6,495.07 as a
result of a supplemental claim filed by the holder in May
1993; a complete accounting of the debt is of record and was
forwarded to the appellant’s last known address pursuant to
the Board’s remand instructions of March 1996.
In December 1992, the appellant filed a request for a waiver
of the loan guaranty indebtedness. His waiver request was
denied by decision of the Committee in January 1993, on the
basis that the appellant’s actions which resulted in the
default and indebtedness constituted “bad faith,” as defined
by applicable statutes and regulations. See Statement of the
Case, under cover letter dated June 24, 1993.
As indicated above, the Board remanded this case in March
1996, so as to allow the appellant an opportunity to
substantiate his claim that he tried to sell or rent the
property after his default in June 1990; however, as of the
date of this decision, no response has been received to
VARO’s development inquiries undertaken in compliance with
the Board’s remand of March 1996. VARO’s inquiries have been
sent to the appellant’s last known address of record as
indicated on his substantive appeal (VA Form 9) dated January
20, 1994. Absent any evidence that he took affirmative steps
after filing his Form 9 to change the address he provided on
it by specifically directing VA to send all correspondence
and notices to an address other than that provided on the
Form 9, and absent any evidence that mailings to the Form 9
address have been returned as undeliverable, the United
States Court of Veterans Appeals has held that the Board is
entitled to rely on that address as being the appellant’s
“last known address”. See Thompson v. Brown, 8 Vet.App. 169
(1995). Moreover, the Court has held that the burden is on
the appellant to keep VA apprised of his whereabouts; if he
does not do so, there is no burden on the part of the VA to
“turn up heaven and earth to find him.” See Hyson v. Brown,
5 Vet.App. 262 (1993).
Analysis
A waiver of loan guaranty indebtedness may be authorized in a
case in which collection of the debt would be against equity
and good conscience. 38 U.S.C.A. § 5302(b) (West 1991 &
Supp. 1995). However, in determining whether a waiver of
loan guaranty indebtedness may be granted, the Board must
first address the issue of whether fraud, misrepresentation,
or bad faith exists. Such a finding precludes consideration
of waiver of recovery of the debt. 38 C.F.R. § 1.965(b)
(1995). It should be emphasized that only one of the three
elements (fraud, misrepresentation, or bad faith) need be
shown to preclude consideration of waiver of recovery of the
loan guaranty indebtedness. 38 U.S.C.A. § 5302(c).
“Bad Faith,” according to the applicable regulation,
“generally describes unfair or deceptive dealing by one who
seeks to gain thereby at another’s expense” and involves
conduct which “although not undertaken with actual fraudulent
intent, is undertaken with intent to seek an unfair
advantage, with knowledge of the likely consequences, ....”
38 C.F.R. § 1.965(b)(2) (1995). Thus, a debtor’s conduct in
connection with a debt arising from participation in a VA
benefits/services program exhibits bad faith if such conduct,
although not undertaken with actual fraudulent intent, is
undertaken with intent to seek an unfair advantage, with
knowledge of the likely consequences, and results in a loss
to the government. Under VA guidelines, bad faith has been
defined to include “a willful intention to neglect or refuse
to fulfill some duty or contractual obligation.” See
Veterans Benefits Administration Circular (VBA), 20-90-5
(February 12, 1990).
A determination of bad faith is based on the circumstances
that led to the default and foreclosure, and the appellant’s
attitude toward his contractual obligation and actions (or
omissions) to avoid foreclosure, as indicated by the evidence
of record. The burden of proving such willful intent lies
solely with VA. VBA Cir. 20-90-5.
As alluded to above, it is the opinion of the Board that the
appellant’s actions in abandoning his mortgage obligation
coupled with his failure to cooperate with either the lender
or VA concerning efforts to avoid foreclosure are
representative of a willful intention to neglect or refuse to
fulfill his contractual obligations pursuant to the terms of
the VA guaranteed loan. Following his default in June 1990,
the evidence of record discloses that the appellant ignored
the inquiries of the lender and VA concerning the
circumstances of his default and then without notice,
abandoned the property. It is not shown by the evidence in
the file that contact was ever established between the
appellant and either the lender or VA from the time of his
default through the redemption period. Indeed, by his own
admission, his move-of-state to Indiana without notice to the
either the holder or VA in September 1990, effectively
precluded such communication within the time allowed prior to
the June 1991 foreclosure sale. Such ill-advised actions
directly resulted in foreclosure and loss to the Government.
The fact that the appellant failed to report the
circumstances of his default to either the holder or VA upon
default or during the redemption period, combined his
abandonment of the property without notice, negates any
personal mitigating factors claimed on appeal and therefore,
will not serve to form a basis to absolve his bad faith
demonstrated in this case.
Moreover, in addition to the above, there is no evidence that
the appellant made any further scheduled monthly mortgage
payments following his default in June 1990, or that he made
any attempt to redeem past due payments and late charges.
Further, there is no evidence of record which objectively
verifies that he attempted to rent and/or list the subject
property for sale. As indicated above, it is highly doubtful
that such actions were taken by the appellant in view of his
abandonment of the property without notice and move to
Indiana in September 1990, many months prior to the
foreclosure sale. These facts clearly demonstrate that his
attitude toward his contractual obligation and actions (or
omissions) to avoid foreclosure reflected an intentional
disregard to fulfill his mortgage contract. In summary, his
contentions offered in an effort to mitigate the
circumstances surrounding the default and creation of the
loan guaranty indebtedness are outweighed by the objective
evidence of record which reflects a complete lack of action
on his part to negotiate with the lender or VA so as to cure
the default and avoid foreclosure.
In view of the above finding, the Board concludes that the
appellant’s actions which resulted in the default and
foreclosure in this case represent willful intent to neglect
or refuse to fulfill contractual obligations pursuant to the
terms of the VA guaranteed loan, which as defined by VA
guidelines constitutes bad faith. See VBA Circular 20-90-5
(Feb. 12, 1990). Accordingly, consideration of waiver of the
loan guaranty indebtedness is barred by statute. 38 U.S.C.A.
§ 5302 (c).
ORDER
Waiver of recovery of the loan guaranty indebtedness is
denied.
KENNETH R. ANDREWS, JR.
Member, Board of Veterans’ Appeals
(CONTINUED ON NEXT PAGE)
The Board of Veterans’ Appeals Administrative Procedures
Improvement Act, Pub. L. No. 103-271, § 6, 108 Stat. 740, 741
(1994), permits a proceeding instituted before the Board to
be assigned to an individual member of the Board for a
determination. This proceeding has been assigned to an
individual member of the Board.
NOTICE OF APPELLATE RIGHTS: Under 38 U.S.C.A. § 7266 (West
1991 & Supp. 1995), a decision of the Board of Veterans’
Appeals granting less than the complete benefit, or benefits,
sought on appeal is appealable to the United States Court of
Veterans Appeals within 120 days from the date of mailing of
notice of the decision, provided that a Notice of
Disagreement concerning an issue which was before the Board
was filed with the agency of original jurisdiction on or
after November 18, 1988. Veterans’ Judicial Review Act,
Pub. L. No. 100-687, § 402, 102 Stat. 4105, 4122 (1988). The
date which appears on the face of this decision constitutes
the date of mailing and the copy of this decision which you
have received is your notice of the action taken on your
appeal by the Board of Veterans’ Appeals.
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